My employer recently switched to Fidelity and for now I’ve chosen the LIFEPATH IDX 2050 A option. It looks like this one provides quarterly dividends, but the yield is 0.0%(?)

I’m looking for some fairly risk adverse options or blends that provide dividends that will be reinvested. Anyone have any recommendations?

  • @[email protected]English
    1•3 months ago

    It’s more about tax efficiency. if you open an IRA, you’re likely going to be contributing on a Roth basis, meaning that you’ll never pay taxes on the growth, whereas in a 401k, you’re likely contributing on a pre-tax basis, meaning you will pay taxes on that money. With a taxable brokerage account, you’ll be paying taxes on every disbursement, meaning anytime you sell or receive a dividend.

    So, generally speaking, you’ll want:

    • Roth accounts (Roth IRA, Roth 401k, etc) - highest expected growth
    • pre-tax accounts (IRA, 401k) - lowest expected growth
    • taxable brokerage - lowest capital gains (so low dividends)

    In practice, that usually means:

    • highest growth - growth stocks
    • lowest growth - bonds
    • lowest capital gains - value stocks

    This can be as complicated or as simple as you’d like. For me personally, I have:

    • Roth - US stocks - i think these will continue to outperform longer term
    • pre-tax (401k and HSA) - other stocks & bonds - this is where I rebalance
    • taxable brokerage - international stocks (for the foreign tax credit)

    My overall portfolio composition is the same, I just shift around where I keep each asset class based on tax efficiency.

    • @rootOPEnglish
      2•3 months ago

      Ah that makes sense, thank you. For now I’m doing backdoor Roth IRA contributions as I can’t do direct contributions. Eventually I hope to be able to also use the mega backdoor after I fill up the pre-tax federal contribution limits for 401k. That will be “after-tax” that is converted to Roth.